Choosing between a fixed or variable rate
If you've done a little car loan comparing already, you may have seen the terms "fixed rate" and "variable rate" scattered about. Don't just pick one at random though, as your choice can majorly influence how many dollars you end up paying back in interest or fees. Ultimately, the rate type you opt for should depend on how you intend to use your car loan.
Let's look at fixed rate car loans first, where the interest rate is guaranteed to stay that way for the entire loan term. So long as you follow your loan repayment plan, you will know exactly how much money will go to your provider in interest. On the downside, most fixed rate loan providers charge a fee when the total loan amount is repaid early, and many have limits on how much extra you can repay. This is why, when choosing a fixed rate loan, it's important to select a term that aligns with how many years you want to spend paying off your loan.
Unlike the stability that comes with fixed rate car loans, the interest rate with variable rate loans can change over the course of your loan term in or against your favour. Don't let that put you off, as they will rarely involve early loan repayment fees. So if your budget can handle a slight rate change, plus you want the opportunity to clear your debt whenever it suits, a variable rate car loan could right for you.
Why secured car loans are cheaper
Now that you understand the difference between fixed and variable rates, let us explain the benefit of securing your vehicle to the loan. Car loans are typically cheaper than regular personal loans because they are often secured against the car purchase. As you know, shiny new vehicles are valuable assets, so when you tie one to a loan as collateral, you sign a contract stating your provider can claim your car if you default on the loan. In return for this security, providers offer more competitive rates, meaning you end up paying much less in interest!
What about used cars?
When it comes to buying a preloved vehicle with a secured car loan, your options are generally limited. It makes sense, given second-hand cars are high risk purchases, as there's no guaranteeing they won't conk out unexpectedly and lose their value. New cars on the other hand, have warranties and could be resold more easily if a car loan provider tried to recoup its losses in the case of a car loan default. If you want to buy a used car, shop around here at Mozo, as some lenders can secure cars that have been on the road for a few years. Alternatively, you could pay a visit to our personal loans hub and choose from an array of unsecured loans.
Features of a top car loan
Many car loans come with convenient features to make your life easier while paying them off, such as optional additional loan repayments and redraw facilities. Below is a runthrough of these aspects and more that you'll find in a top car loan.
Low interest rate
We could go on and on about why the interest rate is important when you take out a car loan, but instead we'll run you through the following scenario...
Sarah has just secured her full licence after learning how to drive in her parent's car. Now she has a stable income, Sarah's ready to take out a car loan and buy one of her own. But which one should she choose?
Using Mozo's car loan comparison calculator, Sarah compares her everyday banking provider to another one in the market. Both products have features she's looking for in a loan, like the flexibility to choose how frequently she can make repayments.
Say Sarah picks old favourite with a 12.74% interest rate on offer. She'll hand over $15,488 in interest for her $30k car loan over a 7 year loan term (on a monthly loan repayment plan). On the other hand, ditching bank loyalty and going for one of the lowest rates at the time of writing of 5.14%, means she'll fork out $9,705 less. It just goes to show you how much that one number can affect your hip pocket!
Little or no fees
Individually, monthly fees and signup costs may appear small, but they really do add up. One easy way to factor in all the costs involved with a potential car loan product, is to look at the comparison rate. This rate type is made up of overheads like the headline rate, application and ongoing fees.
Just remember, that even if you settle on a car loan with low fees, most providers will bill you more for making a late repayment.
Minimal early loan repayment penalty
Whether or not a car loan needs to have a minimal or no early loan repayment penalty will depend on who you ask and the interest rate you choose. Some people like sticking to the original loan repayment schedule as it suits their financial situation best, while others prefer keeping their early loan repayment options open.
Convenient extra repayments and redraw facility
If making extra repayments suits your style and you use the feature efficiently, you'll end up paying less in interest, as the rate is only applied to how much you owe.
Another top car loan feature is none other than having a nifty redraw facility to dip into extra repayments. You can use a redraw facility to pay for things when other life expenses crop up, then make extra loan repayments when you have cash to spare.
Keep in mind that some providers set redraw minimums and have redraw fees, which may cost more than what the flexibility is worth to you. Also we should mention that generally speaking redraw facilities only come with variable rate loans.
How to spot a car loan trap
To help you dodge a car loan trap, look out for the following telltale signs...
Interest rate is too high
Treat high car loan interest rates like bad omens and steer clear of them! When you secure your car to a loan, the rate should be reasonable rather than high. For a clear picture on the kind of rate you can expect, compare car loans at the top of the page.
Too many fees
Car loans with competitive interest rates can still sting you with monthly and sign up fees. It's a trap that can come back to haunt you over time. For instance, say you take out a $15k car loan and pay it off over a 5 year contract. Even if you have a low $7 monthly fee, over the course of the loan it will amount to a tidy sum of $420. Wouldn't you rather have that money in your bank account?
Not enough flexibility
There's nothing worse than choosing a car loan without enough flexibility when you need it. For instance, one car loan we compare allows you to make extra loan repayments, though there is no redraw facility available. For some this may be too constraining. It's important to weigh up flexibility with interest rates and fees, as you may be happy to compromise on the interest rate for the features you want.
Car loan how-to's
You've nearly reached the end of the page, but before you leave us to compare deals at the top of it, here are some parting "how-to" words of wisdom!
How to compare car loans
It's super easy to compare car loans here at Mozo. Once you begin studying the tables at the top of this page, you'll begin to notice the key dealbreakers and benefits of each loan. After all, because you've read this far, you'll know what features matter to you! Choose your car loan by clicking on a blue "go to site" icon beside the product of your choice. You'll have the opportunity to apply via the provider's site.
How to use calculators
Finance isn't so hard when you have calculators to do the sums for you! Here are three seriously useful ones we've developed for an even more thorough car loan comparison...
- Switch and save calculator. As the name suggests, this tool is designed to calculate whether you'd be better off financially on another car loan than the one you have currently. Type in some key loan details, and Mozo will give you the results!
- Car loan comparison calculator. Compare the cost of two loans by typing in key details like your interest rate, loan term, loan amount, and fees compared to another car loan product listed on our site.
- Car loan repayment calculator. Want to know what your loan repayments would look like? Easy peasy, just type in the loan amount, loan term, interest rate and repayment frequency. This calculator will also tell you how much you'll pay in interest over the loan term.
How to apply for a car loan
Get all your documents ready like 100 points of ID, proof of income and details of your assets and liabilities. You'll need to have a clean credit record, although this doesn't necessary rule you out. Want to know what car loan amount you can afford? We wrote all about it here.
Most car loan applications can be done online, and approval can take as little as a few hours or even minutes. If you prefer to apply in person, visit a local branch of your chosen provider (if there is one), or call its customer service hotline.
Want to apply right now? Navigate your way back to the very top of this page and click on a "go to site" button beside the car loan you want. Best of luck, and enjoy your new set of wheels!